Like the rest of the tech sector, Palantir (PLTR, Financial) stock had a tough 2022. Although revenue continues to grow quickly, the data analytics company remains unprofitable, and investors are not biting. The markets are in a risk-off mood, and investor sentiment is likely to remain muted if a company is not raking in profits.
Palantir's business model is undeniably costly at the moment, but the company shows signs of progress in nearing profitability. Thanks to a massive stock selloff in 2022, its market cap has dropped far enough that it is no longer overvalued by my estimates. While the journey may be rocky, Palantir is moving towards breaking even financially, which is certainly a great sign for the company. A positive bottom line could go a long ways towards boosting the stock.
Growth efforts are beginning to pay off
Palantir's artificial intelligence software is truly impressive as it gives organizations the power to uncover unknown insights from massive amounts of data. It comes as no surprise that the various parts of the U.S. governmemt remain major customers of Palantir. However, extending its offerings to the private sector is what will really open up countless opportunities to drive growth moving forward.
Companies can use Palantir to detect supply chain issues before they happen, helping them become more efficient in terms of energy and costs. AI-driven software has proven to be an invaluable asset for government and corporate customers and could revolutionize many industries with further developments.
Palantir's growth with companies could also help fix its reputation in the eyes of the public and investors. It has engaged it some highly controversial government contracts from a human rights perspective that resulted in negative press, which could have contributed to sending its stock prices on a downward trajectory. However, the development of the commercial business will likely be a huge win from a public relations perspective as people see that Palantir's technology can be used for more than just privacy invasions and violence.
In the most recent quarter, Palantir saw its commercial customer count nearly double from 115 to 228. If that trend continues, it will be in an enviable position by 2023. This is a thrilling accomplishment as Palantir strategically grows its customer base.
Important partnerships
Palantir has made significant inroads into the integrated risk management sector with its multi-million dollar strategic partnership with Crisis24. Leveraging Crisis24's extensive knowledge and expertise in crisis management, Palantir seeks to modernize security and risk management processing via its Foundry operating system. By comprehensively analyzing global risks and trends and offering specialized solutions for public and private sectors, Palantir aims to impact fields such as crime, terrorism, health, transportation and more. This new collaboration between Palantir and Crisis24 is sure to revolutionize how we understand dangers worldwide.
Meanwhile, Palantir and WesTrac have formed a partnership designed to revolutionize the outlook of Australia's servicing and rebuilding operations sector. Palantir Foundry will provide customers with a robust support network and an in-depth look into optimized customer service. This operating system has been tailored to meet the needs of WesTrac, delivering a wide range of services out of its Perth headquarters tailored towards efficient performance. Forward-thinking companies such as WesTrac recognize that intelligent data capability is key in the modern business world - and Palantir Foundry provides just that.
Losses are narrowing
When Palantir reported its third-quarter results recently, it was cheering news that the operating loss margin has trended positively compared to last year. Indeed, its sales and marketing expenses continue to drive a large portion of operating costs. However, investors should be encouraged that this gap appears to be closing as Palantir's investment in these areas is paying off.
Despite reports of operating losses and a seemingly large 13% loss margin for Palantir, there is cause for celebration. On closer examination of the company's financials, the operating loss margin is narrowing. Last year's operating loss margin was 23%, but this has now been cut by 10%, which is a substantial improvement. As Palantir continues to grow its revenue, this could be the first indication of a successful path to profitability.
Takeaway
Investors in Palantir have seen their shares do badly this year, with the stock even falling below the price at which it initially hit the market. Unfortunately, such spectacular revenue growth led to overly optimistic expectations and an overheated stock price in the bull market of 2021. Palantir was seen by many as a representation of the 2020 and 2021 market bubble, and thus the stock has sold off this year.
Perhaps this was inevitable due to the bear market and rising inflation environment, but for those who are bullish on the stock, the recent market selloff could potentially provide an opportunity to acquire shares at a discounted price. Heading into 2023, I believe the company is in a great position. Commercial revenues are rising and losses are narrowing, and the company still has a long runway for growth.
